Why have plastic raw material prices increased so much in 2022?
The world is interconnected and countries depend on each other for various reasons and so are businesses. Companies continually strive to match their supply to demand. The government tries to ensure that the finances are aligned to achieve a balance in imports and exports. All such activities are undertaken to ensure that the development is not hindered in any way. With countries trying to achieve their goals, the COVID-19 pandemic disrupted the whole supply chain.
The pandemic very adversely impacted the business cycle in general and the supply chain in particular. The global trade interruption has resulted in a lot of bottlenecks in the procurement process. This gave rise to inflation thus, impeding the logistics network. It created uncertainty in operations and an increase in landed raw material prices. The resulting lockdown restricted the movement of not just people but also freight. As the raw materials market continued to be under considerable strain, the Russia-Ukraine conflict added woes to the already ailing world. These circumstances created an ironic situation; there was a demand for raw materials but it could not be fulfilled due to supply constraints. Due to this, the transportation charges shot up and thus, increasing the cost.
As a result, the manufacturers decided to cut down their production further exacerbating the inflation. When the restrictions of the pandemic were gradually lifted, the demand rose quickly in order to compensate for the losses incurred during the lockdown. Production capacities are limited and were not expanding as quickly as necessary in accordance with the demands. The main reasons for the hike in the prices of plastics raw materials are a substantial increase in energy costs, growing demand, a decline in crude oil production capacity, a reduction in global inventories, and the impact of COVID-19. The Ukraine crisis further impeded the supply of raw materials.
Here are some of the critical factors that are keeping material prices high:
High demand combined with a reduced supply of materials.
Oil prices are skyrocketing and are now at a 10-year high including Brent Crude and WTI.
Silica sand prices have been increased which will affect the price of glass fibre.
Energy prices continue to rise, which will impact the cost of material production.
There are still global shipping issues around delays and costs remain astronomically high.
Shortage of logistics staff and HGV drivers, especially for the transport of hazardous goods.
A number of production plants are going offline for maintenance, or there are bottlenecks in logistics that restrict the supply
The more exotic materials, called engineering plastics, are more prone to disruption as fewer sources exist.
Other industries are competing for the same limited supply of material.
The impact is across all resin systems and specialty chemicals, and reinforcements, including glass and carbon fibre, and many others. Besides, businesses are struggling for workers, raw materials from other businesses, and transport becomes less available and more costly. When the material production is less and the transportation charges are on the rise, businesses have to pay more. Then comes along the Russian invasion of Ukraine affecting the oil and gas supplies.
All of these have contributed to the increase in prices of plastic raw materials in 2022.